PepsiCo $PEP reported second-quarter results on Thursday that beat revenue forecasts but fell slightly short on adjusted earnings, as weakness in North American food and beverage sales offset strong performance abroad.
On an adjusted basis, the company earned $2.20 per share, one cent below the $2.21 consensus estimate tracked by CNBC. Total net revenue of $24.18 billion represented a 6.4% year-over-year increase and cleared the $23.95 billion Wall Street target. Stripping out currency movements, acquisitions and divestitures, organic revenue climbed 2.4%.
Geographically, the picture was split. Overseas divisions — including Asia Pacific Foods, International Beverages Franchise, and Europe, Middle East and Africa — all recorded organic volume gains, making international operations the company's main source of momentum. At home, the beverages unit suffered a 4% volume drop and the convenient foods segment ended the quarter flat.
"Our North America business was softer than we anticipated in the second quarter, and we now expect a more gradual improvement in performance trends for the balance of this year," Chief Financial Officer Steve Schmitt said in prepared remarks.
Chairman and CEO Ramon Laguarta pointed to tighter consumer budgets as a headwind. "Results were tempered in the quarter as U.S. food and beverage category performance moderated with consumer budgets tightening due to rising inflationary pressures," he said in prepared remarks.
Core operating profit rose 4% to $4.07 billion, while core operating margin narrowed by 40 basis points to 16.8%, reflecting cost pressures that partially offset productivity gains and pricing actions.
The company has been working to reverse persistent volume declines in North America. Price reductions of up to 15% on Lay's, Tostitos, Doritos and Cheetos were rolled out in February in an effort to win back shoppers, and the company has undertaken branding overhauls on flagship products such as Gatorade and Lay's. Activist investor Elliott Investment Management has pushed the company to reduce prices on selected products and expand more affordable pack sizes, according to Barron's.
Management left its annual targets intact. The company still expects organic revenue to expand by 2% to 4% and core constant-currency EPS to rise by 4% to 6%. Factoring in a foreign exchange benefit of roughly one percentage point, those figures translate to reported net revenue growth of 4% to 6% and core EPS growth in the neighborhood of 5% to 7%.
PepsiCo stock was down about 0.7% ahead of Thursday's market open.